Market Insights: On Momentum and Support

Market Insights: On Momentum and Support
February 6, 2018 Alex

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Disclaimer: Not professional or financial advice

Support Incoming?

If BTC goes as low as 4,900, that is likely where we will see very serious support. If it does reach that level, it is a good place to deploy a lot of Fiat.

On the 1-Day chart we can see a large amount of volume for the day so far. This is a good signal that we’re seeing some support. It also might indicate that we will see a delayed decline, or even a sideways or upward trend in the shorter term. Typically, though, in a bear market, you do not see a big drop like we’re seeing today and then a straight shot upward, in a V of sorts.

Bitcoin/USD Cryptocurrency Chart

Note the volume today (February 6th, 2018), and the drop and subsequent recovery in November.

If you look at November – which was a bull run – there was a draw down, in a parabolic sell off, and then and immediate recovery. Over the course of 2017, this was more or less the story. But in a bear cycle things tend to take a different shape – there is a lot of downward momentum, and so a recovery can take time (but this isn’t an absolute certainty).

It’s important to be aware of this so that you don’t think you’ve hit the bottom, and expect the price to just take off. You don’t want to buy in only to watch the price continue downwards.  Don’t worry about missing say, the first 10% gain. Focus on being confident that the price will not continue going down. Keep an eye on the structure of the chart, market liquidity, macro forces, etc.

The Strongest Alts

As compared to yesterday, there is 40-50 billion back in the market (based on CoinMarketCap). We’re starting to see some pops back up among alts. It’s informative to take a look at which alts are performing and bouncing best relative to bitcoin. This is essentially the market sentiment, and will give an indicator of what’s showing signs of strength. The bigger the coin, showing signs of strength, the better.

If you’re looking for big ROI in the next 6 months or so, the top 20 coins – as as mentioned yesterday, protocol coins – might (translation: do your own research) offer the best ROI.

Hearing on Virtual Currencies

This morning the US Senate held a special hearing on Virtual Currencies with the Chairman of the SEC, Jay Clayton, and the Chairman of the CFTC, J. Christopher Giancarlo. Overall, the hearing proved stern yet openminded (though you might interpret it differently). They want to penalize those people (scammers, frauds) trying to screw over the average investor, but also want to let crypto breathe and grow. Over the last 30 years in the U.S., technology has driven a lot of economic growth, and they are acutely aware of this.

It strikes me that we owe it to this new generation to expect their enthusiasm about virtual currencies with a thoughtful and balanced response, not a dismissive one. And yet we must crack down hard on those who try to abuse their enthusiasm with fraud and manipulation – CFTC Chairman Giancarlo

Clayton was very clear that ICOs are securities, and will be treated as such. It’s possible that they will go after ICOs that are the worst offenders insofar as those using tactics like false marketing, and use these cases as examples to further their regulatory agenda.

I want to go back to separating ICOs and cryptocurrencies. ICOs that are securities offerings, we should regulate them like we regulate securities offerings. End of story. – SEC Chairman Jay Clayton

The SEC doesn’t necessarily have jurisdiction over an exchange like GDAX for example, such that they could audit it and make sure there is no market manipulation. Adding futures with the CFTC gives them some rights to look at exchanges, because spot price comes from these exchanges. But there is only so much that they can do, making legislation their focus, which they are working on ideas for.

What all of this means so far as investing decisions is that we should be aware of what might be regulated before all else, which in this case is likely to be ICOs.

During the hearing, Giancarlo pointed out that he has college-aged family members who were previously not into finance, but who now are because of cryptocurrency and the according technology. This is important, because someone like Giancarlo is like talking to his family as much as he is to colleagues, and his family has his ear (and he’s turning around and crafting policy). This is all to say that when it comes to crypto, community and educating people so that they can relay quality information about crypto is important, and valuable.

In the big picture, the exchanges that have the blessing of regulators will allow the big money to come into the market.

Segwit Surely Incoming

Coinbase has announced that they are going to be releasing Segwit soon. This essentially allows for cheaper, faster, and batched transactions with BTC. This should help with bitcoin getting a better reputation as being faster, cheaper, and easier to use. It should also help it integrate with more wallets. The better a reputation BTC has, and the more integrated it becomes, the better.

State of the Stock Market

The stock market had the biggest single day loss in history by points. Relatively speaking this isn’t that bad, but point-wise it is. What this meant in practice is that it that the VIX (Volatility Index) went up over 120% yesterday, triggering a large amount of automatic trading.

This is likely to cause examination of the amount of robo-trading that is going on, but more importantly it gives the media something to focus on other than crypto. When people can place their fear somewhere else, like the Dow Jones, they are less likely to put it into crypto, helping crypto rise and gain support. The less bad news about BTC in mainstream media, the better it is for momentum and growth.

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